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The old adage “with age comes wisdom” appears to hold true when it comes to financial management, according to a Federal Reserve Bank of New York report on debt.

Credit scores, which play a critical role in borrowing money, clearly go up on average as we get older. The generational divide is as deep with credit scores as it is with musical tastes for 20-somethings and those of retirement age.

In 2016, only 16 percent of consumers under age 30 met financial website Credit Karma’s good credit score threshold of 720 and higher, compared with 77 percent of consumers aged 70 and older. For the years in between, average scores steadily got better with each age group from young to old.

“I think you do make wiser decisions as you get older, although there are exceptions,” said Diana Dorn-Jones of United South Broadway Corp., a nonprofit community organization in Albuquerque that provides financial and mortgage counseling.

A joint University of Texas and Texas A&M research study, “With Age Comes Wisdom: Decision-Making in Younger and Older Adults,” analyzed why older people make better decisions and basically found that their decision-making experience makes them better at weighing risks and rewards.

The rise in credit scores with age also sheds light on the evolving relationship that the average consumer has with debt throughout his or her life, Dorn-Jones said.

(Russ Ball/Albuquerque Journal)

The early years

The early adult years are often characterized by a lot of borrowing for what Vicki Van Horn of the New Mexico Project for Financial Literacy called “the start-up costs associated with becoming an adult” – primarily student loans, car loans and credit-card debt.

“They’re betting on success in their future,” said Sharron Welsh of the Santa Fe Community Housing Trust about the bubble of 20-something debt.

Borrowing by “the young and the riskless,” as the Fed debt report described the 19-29 age group, was a decisive factor in making 2016 the first four-quarter increase in total outstanding consumer debt since 2008. At the same time, it is an age group characterized by slim financial resources.

Credit, which produces debt, is critical to the economy because it enables consumers to purchase goods or services that they otherwise could not afford. The alternative of a cash-only economy would not be a very vibrant one.

Student loans, for example, enable young people to get the education or training needed for financial success later in life. The sheer volume of student loans, which is the fastest-growing form of consumer debt, has raised alarms about the financial future of many of the borrowers.

“The cost of an education has never been higher for the average student,” Van Horn said. “Young adults and their parents seem to take on student loans without doing a hard analysis of how the education will cost-justify.”

Welsh noted, “Not long ago, a student mentioned to me that a student loan doesn’t have to be spent on tuition, fees and books. It can be used for other expenses and often is. It’s an indicator that the under-30 group is sorely cost burdened.”

Student loan factor

A Fed analysis shows 40 percent of the under 30 group and 25 percent of the 30-39 group carry student-loan debt. The average outstanding balance is $23,300 per borrower.

The delinquency or past-due rate on student loan debt was 27 percent in 2011, with the highest delinquency rate among 30-somethings at 34.2 percent. Student loan debt is not dischargeable, meaning the borrower can’t get out of it by filing bankruptcy.

For comparison, the delinquency rate for credit cards and car loans tends to run at about 10 percent, according to a Fed analysis.

Since length of credit history is part of a credit score, student loans and other debt can weigh heavily on the scores of young people because they lack a track record of paying off debt, Van Horn said. In addition, defaults or other credit mishaps can take a toll on scores.

“Most of these folks recover and rebuild their credit as longer-term goals such as homeownership or getting married come into view,” she said.

The learning curve for making sound household budget decisions and understanding the consequences of debt can of course be shortened by some financial management instruction available in different forms by nonprofits such as United South Broadway, the Project for Financial Literacy and the Santa Fe housing trust.

Twenty-somethings can hurt their credit scores when they think they’re doing the right thing, like shopping multiple sources for the best car loan or credit-card deal, she said. Each time a potential lender or credit-card company runs a credit check, the individual’s score takes a ding.

“I always tell young people to be cautious as they venture out into the world of credit,” Dorn-Jones said.

Quality of credit

Into the peak earning years of 45-54, consumers are in an expansive mode financially, and their predominant form of debt is a mortgage on their house. Mortgage debt dwarfs all other forms of consumer debt.

“A small portion of the credit score is the quality of credit one has, with secured credit such as a mortgage seen as better-quality credit than unsecured credit such as credit cards,” Van Horn said. “Older borrowers are more likely to have a better quality of credit than are young adults.”

Taking on new debt tends to diminish later in life, Welsh said.

“By their 60s, they’re shoring up their finances and trying to hold things steady,” she said.

A few years ago, Welsh said her 80-something father encountered a problem with his car insurance carrier, which was threatening to cancel his coverage because he had no credit score. Her father owned his home outright, had bank accounts and paid his bills by check but hadn’t had any installment debt for years.

“It wasn’t that he had bad credit, he had no recent credit activity,” she said. “I thought it was kind of punitive on the elderly.”

The consensus advice is for consumers of any age to check their credit scores for errors. You can get a free annual credit report at annualcreditreport.com, according to the Consumer Financial Protection Bureau.

Regular checks are particularly important in New Mexico because there are so many common surnames, which increases the potential for information on someone with a similar name being posted to your account, Dorn-Jones said.

IAPDA features the IAPDA Accredited Service Center accreditation. The company of qualified members can display the IAPDA Accredited Service Center logo on their company website and marketing materials confirming their company’s overall level of participation in IAPDA education and certification programs.

Companies of IAPDA members can qualify for this accreditation by committing to IAPDA training and certification of their key staff members. Levels of participation are determined by the number of company employees who complete IAPDA programs and attain certifications, including continuing education and re-certification every two years. Platinum level companies have over 100 currently certified IAPDA members, Gold level companies have 25-99 currently certified IAPDA members, Silver level companies have 10-24 currently certified IAPDA members and Bronze level companies have 2-9 currently certified IAPDA members.

Complete industry education and professional certification is more important than ever in the debt relief industry. IAPDA programs provide a standardized foundation for the debt consultant’s professional knowledge, as well as an objective measure by which consumers can judge the expert they turn to for help.

Laurence Larose, IAPDA Executive Director says, “Consumers deserve to work with debt relief consultants who totally understand all the debt relief options available and who can effectively guide them back to a debt free life.” Leading company owners and top consumer debt experts agree. They heartily recognize and endorse the complete debt relief education and the certifications earned by IAPDA members.

Last year, the cost of raising a child to age 18 for middle-income families rose to $245,000 – and that is not including college. Many of those expenses – about $20,000 of them – could come in the first year when parents factor in child care, medical expenses, and baby equipment. Of course, the value of having a family cannot be counted in dollars alone. But smart would-be parents will recognize that a child comes with a serious punch to the pocketbook, and prepare accordingly.

1. Create a new budget.

Write down your current income and expenses, using pencil and paper, a spreadsheet or a budgeting app. Next, factor in new expenses that come with having a baby — things like diapers, formula, baby gear and daycare. Daycare center care for an infant costs, on average, $972 a month, but decreases as the child gets older.

2. Save as much as possible.

Aim to save enough money to cover six-nine months of living expenses in an emergency fund before the arrival of your little one. The goal is to have enough set aside to pay the necessities including mortgage, utilities and groceries if you or your partner were to become ill, injured or unemployed. Keep adding to your emergency fund on a regular basis.

3. Plan how to care for your new addition.

The Family Medical Leave Act allows most parents to take off 12 weeks from work during the first year after a birth or adoption. But only 11 percent of employees have access to paid leave. Find out what sort of parental leave coverage you and your partner have, if any. Then determine how much time you can afford to take off. You may need to cut expenses and save money now so that you can afford to take off additional – or any – time when the baby arrives. Also, consider whether later, if one parent decides to stay home to care for the baby, you can cover expenses. Perhaps your employer will let you switch to a flexible schedule, job-share, telecommute or cut back your hours. Explore your options now.

4. Get covered.

Health care costs in the United States for pregnancy and childbirth are the highest in the world, although health insurance can help minimize those costs. You can apply for coverage even while you are pregnant. Most health insurance plans are required to cover maternity care and care for the child. Be aware, however, that you will likely need to pay medical fees up to your deductible. Your insurer, your physician or your hospital can help you estimate charges for labor and delivery. If you have a flexible spending account for health care and/or child care, you may want to increase the amount you save. Now is also a good time to review life insurance policies, too. Chances are that you will need to add to an existing policy or acquire a new one when you become a parent. Also make sure you have (or apply for) disability coverage. Be sure to check whether your plan will cover pregnancy as a disability.

5. Update your paperwork.

Make plans to update needed documentation, including wills, life insurance and tax documents. If you have savings accounts, education savings plans or trusts, be sure those documents are correct and updated. After your child arrives (by birth or adoption), be sure to obtain a Social Security number for him or her, and verify that he or she is added to your health insurance coverage.

6. Get out of debt now.

As you can see, expanding your family comes with plenty of expanding costs. If you are struggling with debt, eliminate as much debt as possible before adding to your household. If you are certain that you cannot get out of debt on your own – for instance, you cannot make monthly minimum payments or your total debt is more than your salary – consider contacting a reliable debt relief company for assistance.

All of these expenses can be daunting, but remember that many other parents have successfully afforded a baby. In fact, calling on an experienced parent’s wisdom can help with everything from selecting baby equipment to how to budget and save. Take smart steps to plan, and you won’t be caught off-guard by the costs of a child.

Inductive reasoning is when you try to determine the truth of something by reasoning from the specific to the general. An example of this in the case of debt would be:

I have this debt, which is bad.
Therefore, all debt is bad

The problem with inductive reasoning is that it’s impossible to prove its conclusions are true. And this is certainly true in the case of debt. Despite what you may have been told many times over the years not all debt is bad. In fact, most financial experts today recognize the fact that there can be good debt as well as bad debt.

Bad debt

Bad debt is debt you use to finance things you consume. The biggest example of bad debt is probably credit card debt because of the way most people use credit cards, which is typically to buy clothing, furniture, a cell phone or to pay for a night out on the town.

Even though we may not want to admit it, using debt to pay for a vacation is also bad debt. A vacation might improve your health and emotional outlook and help you be more productive when you get back but vacations never appreciate in value. When you use debt to finance a vacation you’re basically borrowing from tomorrow in order to pay for today’s fun. Once the fun is over all you really have left are some happy memories and a lot of debt. This is especially true if you use debt to finance a vacation you can’t afford.

What is good debt?

What’s good debt? Many financial experts now regard debt you use as an “investment” as good debt. How, you might ask, can any debt be considered an investment? It can be if you use it to buy something that will increase in value over the years and contribute to your general financial health. Here are three concrete examples of debt that most experts would agree is good debt.

Buying a home

Getting a mortgage to buy a house is considered to be good debt because housing always increases in value over the long run. As an example of this where we live houses have increased an average of 12% just in the past year. If you lived here and bought a house a year ago for $200,000 home, it would now be worth at least $224,000 and would therefore be a very good investment. In addition, owning your home can contribute to your emotional health because for most people owning their homes gives them a heightened feeling of security and happiness. Of course, it’s important to never take out a mortgage that you can’t afford, as this would turn that good debt into bad debt.

Going back to school

A second example of good debt is to finance your education if you decide to go back to school to further your career. In fact, this could be a very good debt because it’s likely you would be able to see a nice return on the investment. As an example of this let’s suppose you were to spend $20,000 to get an MBA, which then enabled you to get a job earning $10,000 more a year. You would have that MBA “paid for” in just two years and by year three you would be clearing a “profit” of $10,000 a year. Of course, just as with using debt to buy a home it’s important that you don’t run up too much student loan debt. Studies have shown that when people end up owing $50,000 or more on student loans it’s because they used too much of the money to finance expensive vacations or for their everyday living expenses.

Going into business for yourself

A third situation where debt can be considered good is if you’re starting a business. According to the website Nerd Wallet two thirds of today’s millionaires are entrepreneurs – meaning that they started their own businesses. If you’re starting a business and need to purchase equipment or lease space you could need an SBA (Small Business Administration) loan to help you get started. Just as with going back to school you need to borrow as little as possible. For example, instead of leasing space you might be able to work out of your home. If you do need to borrow money you might be able to get it from family members at much more favorable terms than if you were to go to a bank. Of course, you will still need to be diligent about paying back the money or you could end up causing a horrible family situation.

The ½ — buying a car

This is definitely a gray area because most experts would say that buying a car is bad debt – as automobiles never appreciate in value. In fact, the minute you drive a new car off the lot it will lose somewhere around 20% of its value. However, if you require that automobile to get to and from work or if you use it in your business then it could be considered to be good debt. If the size of your family has increased and you need a larger sedan or an SUV in order to haul everyone around, you could consider that loan to be good debt or at least necessity debt. If you do find you need a new vehicle, it’s always better to buy used and avoid that 20% depreciation you’d get hit with when you drive a new car off the lot. You’ve probably seen dozens of television commercials offering 24- or 36-month automobile leases. When the leases run out on all those vehicles they are sold at much more affordable prices, which means you might be able to pay off that loan in 36 months instead of 60 or even 72.

When it’s okay to use a credit card

As we said before, credit card debt is bad debt. But if you keep your balance low enough that you can pay it off every month then having a credit card can be a good thing. Using a credit card is certainly safer than carrying around a big wad of cash and can be more convenient than writing a check. The credit card business has become very competitive and there now numerous cards available that come with nice rewards in the form of points, airline miles or cash back. So long as you can pay off your balance at the end of every month it’s certainly okay to use a credit card and reap some of those rewards. In fact, there are people who put everything on a credit card – groceries, gas, clothes, movies, school supplies, take-out meals – in order to earn the maximum number of miles or cash back. There’s absolutely nothing wrong with this strategy as long as you pay off your balances every month. But if you start carrying balances forward you could soon find yourself paying 15%, 19% or even more in interest, which would quickly gobble up those airline miles, points or cash back you’re earning.

For many American households, the recession was a time to pay off debt and get their finances in order—whether they wanted to or not. But according to the latest data from the Federal Reserve’s Flow of Funds, Americans are taking on debt once again. The difference is that this time we’re borrowing to finance new cars, college tuition, and other consumer goods.

As the figure above shows, American household debt peaked in 2007 and has since fallen 15 percent. Home mortgage debt accounted for much of the decline—it’s dropped 22 percent since 2007. Consumer debt, on the other hand, has continued to increase and just reached an all-time high of $3.2 trillion.

Americans have added about $100 billion of student debt a year to their balance sheets since 2008. Credit cards and auto loans have also come roaring back, particularly auto loans. The amount of outstanding auto debt is the highest it’s ever been.

Auto and credit card debt, while overall much smaller than student or mortgage loans, is in some ways more risky. Student loans and mortgage debt both finance an asset that’s expected to increase in value. A mortgage finances real estate, which has good odds of increasing in value or, at least, holding your housing costs stable for 30 years. Student debt is an investment in future earnings. There’s no guarantee, but the odds are if you finish college, your salary will, over time, recoup your investment. So while the explosion in student debt and the rising delinquency rate are troubling, at least some of the debt can be justified: It’s a leveraged investment that has a decent chance of paying off.

That’s often not the case for auto loans and goods bought with a credit card. A reliable car may be a necessary expense for some, but as an asset it’s guaranteed to depreciate. Beyond safety and reliability, there’s little investment value in buying a new car.

It seems the increase in auto spending was not driven solely by Americans buying the cheapest, safest car they could find. According to the Bureau of Economic Analysis, spending on cars has increased 35 percent since the recession, almost all on new cars. Spending on repairs and net used cars has barely budged. The surge in new-car buying is partially because households that cut back on big-ticket items during the recession are spending again. But the fact that spending seems to be coming at the expense of more debt suggests Americans are putting themselves in a riskier financial position. They may have less debt overall, but an increasing share of that debt finances consumption that only declines in value.

Consumption per capita has been rising since the recession, despite stagnant income. This may revive demand for now, but the financial crisis showed that consumption, financed by debt, is not the path to resilient growth.

The U.S. economy may be strengthening, but by one measure Americans are flunking the basics of personal finance.

Credit card debt is ballooning, leaving American households with a net increase of $57.1 billion in new credit card debt in 2014, according to a new survey from CardHub. The credit card comparison site said it’s forecasting new credit card debt will rise 5 percent in 2015, reaching $60 billion this year.

While the increased spending could signal that Americans are feeling more sanguine about their prospects and the economy, it’s also a cause for concern given that most workers aren’t seeing the type of wage growth that would support that higher spending. The surge has left the average household credit card balance at almost $7,200, or not far from the $8,300 level that CardHub considers unsustainable.

“We’ve now had six consecutive quarters of year over year increases in our credit card debt load,” CardHub said in the study. “As a result, we must strive to remember the corrosive impact of debt on household finances during the recession and work to get out from under its influence before the burden becomes unbearable again.”

While Americans are carrying more debt, their earnings are barely ahead of where they were a decade ago. Household earnings have increased only 2 percent during the past 10 years, The Pew Charitable Trusts said in a study issued last month.

“That $8,300 figure was the average credit card balance back in the throes of 2008 when the economy started taking the downturn,” said CardHub spokeswoman Jill Gonzalez. “This is a sign that Americans haven’t really learned their lesson. Their attitude toward credit card debt hasn’t improved since the recession.”

On the other hand, Americans are feeling more positive about the economy, which is also reflected in their credit card debt, she added. The company expects 2015 to be a record year for auto sales, as Americans shop for new vehicles amid a brighter outlook, Gonzalez said.

More than half of Americans say they’re financially insecure, citing concerns ranging from student loans and credit card debt to a lack of income, Pew found. With more than half saying they aren’t prepared for a financial emergency, American’s rising credit card debt could pose a problem if interest rates rise or the economy falters.

Still, some signs show that Americans are handling their debt levels, thanks to an improving job market. The credit card charge-off rate, or the percentage of debt that’s declared unrecoverable by credit card companies, is about 2.89 percent, the lowest since 1985, CardHub said.

“While this speaks volumes about the strength of the economy, indicating that more people have jobs and are able to stay current on their financial obligations, the prodigious amount of debt that we continue to rack up indicates that consumer attitudes toward money have not improved since the Great Recession,” the study noted.

Indeed, credit card debt has surged in the last two years, CardHub found. Last year’s $57.1 billion in new card debt is a jump of 47 percent compared with 2013 and a 55 percent leap from 2012.

Consumers are on track to pile up almost as much new credit card debt this year as they didlast year, which was one of the worst years for accumulating debt, says the CardHub 2015 Credit Card Debt Study released Monday.

At the same time, consumers paid off more debt during the first quarter of 2015 than inprevious years, but that is not as good as it seems because they had a high debt level to start with, says CardHub, a consumer credit card research organization.

Consumers paid off $34.7 billion in debt in the first quarter, a 7 percent increase over the first quarters in both of the past two years. But the end of 2014 saw new debts of $57 billion for the year, the largest buildup of credit card debt in recent years. CardHub projects this year’s new debt will reach similar levels at $55.8 billion.

New debt was $40 billion in 2013 and $36.4 billion in 2012 .

Consumers started this year with an average household credit card debt of $7,177, the highest it has been in six years. Total credit card debt at the end of the first quarter was $831.2 billion, a decrease from the end of 2014 when it stood at $872.2 billion.

Despite the first quarter improvements in debt pay down, U.S. consumers’ credit card habits show signs of regression to pre-recession levels, CardHub says. “The second quarter of 2015 will therefore offer a lot of context to our current trajectory, enabling us to better authenticate trends that appear to be emerging,” says the report.

Credit card debt gives an indication of the U.S. economy and of consumers’ financial health, says CardHub.

We’re entering the new year with a growing economy. Yet, credit card debt is growing too, nearly as fast as it did before the great recession.

It may be surprising, but Americans racked up about $68 billion in new credit card debt in 2015. By some estimates it’s nearly $10,000 per household. Getting rid of debt is a popular New Year’s resolution.

After years of paying down debt, Americans charged 34 percent more in the third quarter than they did last year.

Matt Schulz of CreditCards.com estimates families that carry a balance owe an average of $9,600 each.It’s not because they’re hurting just the opposite.

“We’re still not up to the levels of debt that we saw before the great recession, but we’re climbing up toward that area,” Schulz said. “The American consumer feels a little more comfortable spending because they feel a little bit more secure in their job.”

So far, those families are keeping up with payments. Delinquencies are at a record low. However, debt can spiral, especially since the fed will probably raise interest rates in the new year.

“That’s important because the amount that they raise their interest rates generally gets passed on to American credit card holders,” Schulz added.

Even a one percent increase could add hundreds of dollars per year in extra interest. Many people have sworn off credit; however, the easy swipe is still alluring.

CreditCards.com says many banks will lower your interest rate if you simply ask. Also, consider transferring a balance to a zero interest card, but be sure to read the terms carefully. Michael Finney

The holiday season is synonymous with many things, including spending. Opening a Christmas Club account is one way shoppers exercise some financial savvy during the holiday season.

According to survey from the American Research Group, the average family spends between $700 and $900 on Christmas gifts in a given year. Roughly 1.5 percent of the family budget is devoted to holiday giving. This doesn’t factor in the additional expenses of food and entertaining, as well as travel and miscellaneous holiday necessities. The American Consumer Credit Council indicates that the average American carries credit card debt of roughly $8,562, and holiday spending can add to that already heavy burden.

Setting aside funds for Christmas can help cut down on any additional debt from holiday giving. It helps to budget for the added gifts, decorations and food that make the holidays festive. Savings clubs have been offered through banks and other organizations for decades. It’s never too early to establish a Christmas savings account, and most people like to get started right at the beginning of the new year.

Although Christmas clubs have traditionally been offered through credit unions and savings banks, third-party organizations, including retailers, also offer these types of savings accounts. Such accounts may accrue a small amount of interest, and unlike accounts established with banks, the money saved must be spent with the particular retailer holding the account.

The Better Business Bureau advises that Christmas clubs are good ways to budget and help avoid holiday debt. Here are their suggestions when establishing an account.

* Build a budget. Consider how much you spent in the previous holiday season to help determine how much you want to set aside every month.

* Start saving now. The sooner you start setting aside money every month, the better. By setting up a club account in January or February, you’ll benefit more from the interest rate and start the year off on the right foot.

* Shop around. While the interest rates on these accounts are typically not very high, they can vary, so shop around for the best deal.

* Read the fine print. Christmas clubs are essentially short-term savings accounts, but there are a few details that make them different. In some cases, there might be a minimum required deposit to open the account or a minimum amount you must deposit every month. In addition, there is often a financial penalty for withdrawing the funds before the holiday shopping season arrives.

* Automate the process. Many Christmas club accounts allow for monthly automatic deductions of the amount of money you determine from your bank account or paycheck. This helps lessen the pinch. Just make sure that you don’t set aside so much that you run the risk of overdrawing on your accounts.

Christmas clubs can be yet another financing tool that individuals use to help offset the additional expenses of the holiday season.